System and method for computer implemented collateral management

ABSTRACT

A data processing system manages collateral risk associated with a trade of a financial instrument includes a processor and a memory that contains a database configured to store a ruleset relating to determining eligibility of collateral to be considered for a desired trade. A search module searches for accounts that could potentially accept a security position based upon established search criteria. Search results are stored in the memory, and are used to identify one or more security positions eligible for use as collateral for the trade. A collateral analysis module determines a collateral preference ranking by at least applying the ruleset via an algorithm executed by the processor so as to confirm an eligibility of security positions eligible for use as collateral for the trade by testing in accordance with the ruleset. The processor outputs a relative collateral preference indication via a user interface.

CROSS-REFERENCE TO RELATED APPLICATIONS

This application is a continuation under 35 USC §120 of co-pending U.S.patent application Ser. No. 12/832,428, filed Jul. 8, 2010, the entirecontents of which are incorporated herein by reference.

BACKGROUND

This application is directed to a computer-implemented system and methoduseful for managing collateral associated with the trade of financialinstruments. In particular, this application is directed to acomputerized system and method for assessing the eligibility of aparticular financial security for use as collateral in a financialtransaction, e.g., tri-party financing, stock lending transactions, orother financial transactions.

In global capital markets, timely and complete information is critical,especially when collateral is at stake. With increased risk aversion andincreasingly complex credit requirements prevalent in the financialmarkets, finding the right collateral for a collateralized transactioncan be a challenging task, particularly in providing trading parties theability to derive maximum value from their collateral holdings in asecure and controlled manner. The ability to assess what securities canbe used as collateral, and with whom, is vital to the efficiency ofusing collateral.

What is needed is a system and method for managing collateral in afinancial transaction. What is further needed is a computer-implementedsystem and method that simplifies the identification of securitiescontemplated as collateral for a financial transaction, expeditessecurities transfers between receivers and providers of collateral infinancial transactions, and which reduces the risk to both partiesassociated with over and/or under collateralization.

SUMMARY

Through various embodiments described herein, the system and method ofthis disclosure reduces the risk and complexity associated withcollateralized financial transactions. For example, various embodimentsprovide functions related to determining the “position eligibility” offinancial instruments in terms of their potential desirability ascollateral for a particular trade. Various aspects provide the abilityto search and analyze accounts based upon different criteria, and mayinclude securities that are or are not held in custody by the operatorof the system. Results of the collateral eligibility search may bedownloaded into spreadsheet form for further analysis, or sharedelectronically over a network.

Various embodiments of this disclosure may be used in conjunction withexisting financial services platforms, for example the Bank of New YorkMellon's tri-party repurchase agreement products (RepoEdge®) which allowclients to outsource the operational aspects of their collateralizedtransactions, and Derivatives Margin Management (DM Edge®), which helpsclients manage credit risks associated with derivatives transactions byenabling them to accept, monitor and re-transfer collateral. Theseservices, among others such as Repo Margin Management (RM Edge®),MarginDirect^(SM), and Derivatives Collateral Net (DCN), may bedelivered to clients through AccessEdge^(SM), a real-time, web-basedportal.

The operator/manager of the system and method of this disclosure acts asa third-party service provider to the two principals to a trade, and thevarious functions performed by the system and method provide value-addedservices which mitigate risk and lead to greater efficiencies for bothparties.

In one or more embodiments, the position eligibility feature describedherein provides fast and intuitive results, and allows users to screensecurities on-line without the assistance of the system operator andwithout having to separately provide securities for eligibilityscreening, and to assess whether a particular security can be used ascollateral and financing or stock lending transactions with existingcustomer bases.

In one or more embodiments, a data processing system for managingcollateral risk associated with a trade of a financial instrumentincludes a processor; a memory coupled to the processor and containing adatabase therein configured to store a ruleset relating to determiningeligibility of collateral to be considered for a desired trade; a searchmodule configured to search for accounts that could potentially accept asecurity position therein based upon established search criteria and tostore search results obtained therefrom in said memory, said searchmodule using the search results to identify one or more securitypositions eligible for use as collateral for the trade; and a collateralanalysis module that determines a collateral preference ranking of theone or more security positions eligible for use as collateral for thetrade by at least applying said ruleset via an algorithm executed bysaid processor so as to confirm an eligibility of said one or moresecurity positions eligible for use as collateral for the trade bytesting in accordance with the ruleset, wherein the processor outputs arelative collateral preference indication via a user interface.

In another embodiment, a computer-implemented method for managingcollateral risk associated with a trade of a financial instrumentincludes providing a data processing system comprising a memory coupledto a processor and containing a database therein configured to at leaststore one or more user-definable rulesets relating to a desired trade;searching for accounts that could accept potentially eligible securitypositions therein based upon user-selectable search criteria and storingsearch results obtained therefrom in said memory and using the searchresults to identify each of the potentially eligible security positionsfor consideration as collateral for the trade; and determining aneligibility of the potentially eligible security positions as collateralfor the trade by applying said one or more user-definable rulesets in analgorithm executed by the processor by testing an eligibility of saideach of the potentially eligible security positions as collateral forthe trade, said testing an eligibility comprising testing an eligibilityalong each of a plurality of logical paths defined by the one or moreuser-definable rulesets; and causing the processor to output a relativecollateral preference indication via a user interface.

In another embodiment, an article of manufacture comprising a tangiblecomputer-readable medium that contains computer-executable code thereonwhich, when executed by a processor, causes the processor to carry outfunctions that manage collateral risk associated with a trade of afinancial instrument, wherein the executed code is operable to: store atleast one or more user-definable rulesets relating to a desired trade ina memory; search for accounts that could accept potentially eligiblesecurity positions therein based upon user-selectable search criteriaand store search results obtained therefrom in said memory, said atleast one search module using the search results to identify each of thepotentially eligible security positions for consideration as collateralfor the trade; and determining an eligibility of the potentiallyeligible security positions as collateral for the trade by applying saidone or more user-definable rulesets in an algorithm executed by theprocessor by testing an eligibility of said each of the potentiallyeligible security positions as collateral for the trade, said testing aneligibility comprising testing an eligibility along each of a pluralityof logical paths defined by the one or more user-definable rulesets; andcausing the processor to output a relative collateral preferenceindication via a user interface.

The system and method of this disclosure provides various capabilitiesas discussed more fully in the detailed description below.

BRIEF DISCUSSION OF THE DRAWINGS

FIG. 1 provides a functional block diagram of an embodiment of acomputer-implemented and networked system for collateral management;

FIG. 2 provides an illustrative screen shot representing a PositionEligibility Screen that may be used in a graphical user interface of anembodiment of this disclosure;

FIG. 3 provides an illustrative screen shot representing a AllocationHistory Detail Screen that may be used in a graphical user interface ofan embodiment of this disclosure; and

FIGS. 4A-4C illustrate a logic flowchart that implements a positioneligibility algorithm and other rules relating to collateral eligibilitydetermination in an embodiment of this disclosure.

DETAILED DESCRIPTION

In the discussion of various embodiments and aspects of the system andmethod of this disclosure, examples of a processor may include any oneor more of, for instance, a personal computer, portable computer,personal digital assistant (PDA), workstation, or other processor-drivendevice, and examples of network may include, for example, a privatenetwork, the Internet, or other known network types, including bothwired and wireless networks.

Those with skill in the art will appreciate that the inventive conceptdescribed herein may work with various system configurations. Inaddition, various embodiments of this disclosure may be made inhardware, firmware, software, or any suitable combination thereof.Aspects of this disclosure may also be implemented as instructionsstored on a machine-readable medium, which may be read and executed byone or more processors. A machine-readable medium may include anymechanism for storing or transmitting information in a form readable bya machine (e.g., a computing device, or a signal transmission medium),and may include a machine-readable transmission medium or amachine-readable storage medium. For example, a machine-readable storagemedium may include read only memory, random access memory, magnetic diskstorage media, optical storage media, flash memory devices, and others.Further, firmware, software, routines, or instructions may be describedherein in terms of specific exemplary embodiments that may performcertain actions. However, it will be apparent that such descriptions aremerely for convenience and that such actions in fact result fromcomputing devices, processors, controllers, or other devices executingthe firmware, software, routines, or instructions.

The Appendix to this disclosure, described herein, provides an exemplaryalgorithm which may be implemented through computer software running ina processor to determine the “position eligibility” of various “securitypositions”, i.e., ownership of a particular security or financialinstrument. Of course, this algorithm is not intended to be limiting,but merely to describe one way of accomplishing the functions associatedwith determining collateral position eligibility.

In the discussion of various embodiments and aspects of the system andmethod of this disclosure, examples of trading parties include, but arenot limited to, broker-dealers, institutional investors, and hedge fundmanagers.

In various embodiments, a web-based collateral management system orplatform links dealers with investors to conduct collateral transactionsin a safe, efficient, and reliable way. Online dealers and investors canmanage collateral among a diverse range of instruments, includingtri-party repo agreements in all major currencies, securities lendingtransactions, municipal deposits, bank loans, derivatives transactions,letters of credit, and structured trades, for example.

The system and method of this disclosure provide control and completetransparency of how collateral is managed, along with providingcomprehensive screening and selection capabilities to enable precisetransactions with the right collateral at the right time. Further, thesystem and method of this disclosure enables dealers to obtainattractive financing and helps investors make more informed decisionsregarding collateral optimization so as to reduce the risk of over orunder collateralization.

Acting as an agent of both parties to the trade, the custodian/managerof the system and method of this disclosure can provide dailymark-to-market valuations, haircuts/margins, and concentration limits(i.e., maintain percentages of market capitalization, dollar amountlimits for a particular security, or a percentage of the portfolio in aparticular security, for example), as well as manage, track, and settlecollateral transactions across global capital markets by workingcollaboratively with clients to provide collateral transparency. The“position eligibility” functionality of embodiments of this disclosureallows broker dealers to pre-screen securities online, and to assesswhether the securities can be used as collateral in tri-party financingor stock lending transactions. Other functions of the positioneligibility function include the ability to search accounts based ondifferent criteria, and include securities that are either held or notheld in custody by the platform/system manager, e.g., The Bank of NewYork Mellon. Analytical results can be downloaded into standardspreadsheet software for further analysis.

Turning now to the drawing figures, the embodiment of FIG. 1 illustratesa functional block diagram of trading system 100 in which party 110 andparty 111 access collateral management system 140 via network 130 andplatform manager 120, or optionally bypasses platform manager 120.Collateral management system 140 may include network communicationmodule 141 configured to process external communications betweencollateral management system 140 and network 130. Collateral eligibilitymodule 142, described below, is configured using one or more processors(not shown) to evaluate various security positions in terms of theirsuitability as collateral for a particular financial trade ortransaction. Payment processing module 143, indicated in dashed lines,represents optional functionality associated with business paymentactivities for services rendered by the system manager in processing andevaluating collateral for a financial trade. Internal account searchmodule 144 may be configured to search one or more databases associatedwith client assets held in custody for, or for the benefit of variousexisting clients of platform manager 120. Internal account search module144 may be configured to search for a particular type of security orasset, a particular security issuer, or a security rating, for example.Similarly, external account search module 146 may be configured tosearch various parameters associated with accounts that are not held incustody or for the benefit of existing clients of platform manager 120.Reporting and messaging module 145 may be configured to provide standardand/or custom report and messaging formats that may be transferred tonetwork 130 by collateral management system 140, (optionally) throughplatform manager 120, or through an alternate communications pathillustrated by the dashed double-ended arrow in FIG. 1. Memory storagedevice(s) 147, may include one or more databases 148 therein. Memorystorage device 147 may be any type of conventional storage mechanism forexample, random access memory (RAM), and database 148 may be any type ofappropriate database, as would be known by a person of ordinary skill inthe art, for example. Operator input/output and display module 149represents various techniques and computer peripheral devices forproviding operator input and output to collateral management system 140.

The system and method of this disclosure may be implemented in variousways, including a graphical-user-interface (GUI) as represented, atleast in part, by FIG. 2, which illustrates one possible implementationof a “screenshot” that represents initial “Position EligibilityScreening”. The circled letters in FIGS. 2 and 3 will now be addressedin turn.

Letter “A” in the window of FIG. 2 provides an input entry area toidentify accounts to be searched by dealer ID, account, subdivide group,or by purchaser ID. Letter “B” provides an input area via the GUI toidentify a source account that contains the securities positions, i.e.,securities contemplated for use as collateral that are held in custodyby a custodian or platform manager associated with collateral managementsystem 140, and which should be checked for collateral eligibility.Letter “C” denotes an area in which securities to be checked foreligibility may be entered, with the option to add additional securitiesthat are not held in custody by the custodian or platform managerassociated with collateral management system 140, and for whichcollateral position eligibility is desired to be checked. Letter “D”denotes a “radio button” used to commence a search, which displays theselected account groups in result window “E”, which displays a list ofaccounts and the available collateral in each account. From the list atLetter “E”, an analyst or trader using the system can select specificaccounts to be checked for position eligibility. After specifying theaccounts to be checked for position eligibility, selecting the “checkeligibility” (the soft button at Letter “F”), an eligibility check isrun against the selected account groups.

Once the eligibility check has started, it takes into account all rulesagreed for each account, and then compares the securities against theserules. Results of the check is stored intra-day in the user's allocationhistory, allowing a user to go back and look at the results of previouseligibility checks. These results can then be downloaded into aspreadsheet file or provided directly to the dealer for further analysisvia a File Transfer Protocol (FTP), for example. User-defined rulesetsmay be input through Operator I/O and Display 149, for example.

Examples of entities and concentration types that may be used indeveloping various rules for evaluating securities for their eligibilityas collateral are provided in Tables I and II, respectively.

TABLE I ENTITIES Entity Entity ID Description Value 0 Broad Type This isa 4 character field. This field represents a grouping of SecuritySub-Groups (entity #20 below). An example is EQTY (Equity) and VTBL(Convertible) 1 Issuer This is a 4 or 6 character field representing theBNY issuer id. An example is 000119 (Currently this is Nike, Inc.) 2Country of 3 letter ISO Country code representing the domicile countryof origin of the Issuer. An Origin example is USA (United States) 3Security Type 4 byte BNY specific security type. An example is BOND(U.S. Treasury Bond). 4 Position 3 letter ISO Currency Code. An exampleis USD (United States Dollar) Currency 5 Perpetual Is the securityperpetual? YES or NO 6 Security ID The first two characters refer to thetype of identifier (CU for Cusip, IS for Isin, CC for Common Code, SEfor Sedol). A colon follows this. The security identifier follows this.7 Depository This is the BNY code for the depository. An example is ECLRfor Euroclear. 8 Tags This is a BNY tag. Tags can be used to specifyindices or any other useful information about a security. 9 SecurityRating This represents the rating of the security by S & P, Moodys, orFitch, along with the rating source. Please refer to the ratings scaletable 2.4 and the rating operators in table 2.2. Note that this entitywill have a compound value in the 04 record as noted above. 10 IssuerRating This represents the rating of the Issuer by either S & P orMoodys, along with the rating sources. Please refer to the ratings scaletable 2.4 and the rating operators in table 2.2. Note that this entitywill have a compound value in the 04 record as noted above. 11 Months ToThis represents the months to maturity of the security. Maturity 12Priority This does not determine the eligibility of a security. It onlydetermines the sort order of the positions during allocation time. Thelower the number, the sooner it will be allocated. 13 Number of Thisspecifies the number of rating sources that should be present for eacheligible position, Rating Sources along with the rating sources.Currently, there are three sources (S & P, Moodys, and Fitch). Thenumber will range between 0 and three. Note that this entity will have acompound value in the 04 record as noted above. 14 Weighted This is usedto specify a weighted average of the months to maturity at the accountlevel. Average If a position can't be allocated because it would breakthe WAM, then it is put aside and Maturity retested at a later phase inthe allocation. This rule will always be “ANDed” with every (WAM) otherrule in the ruleset. 16 Weighted This is used to specify a weightedaverage of the Security Rating at the account level. Average CreditRatings are translated into numbers using the ratings scale table 2.4.If a position can't be Rating allocated because it would break the WACR,then it is put aside and retested at a later (WACR) phase in theallocation. This rule will always be “ANDed” with every other rule inthe ruleset. 18 Issuer Group This is a BNY Issuer group. This representsa grouping of issuers (entity #1). Currently, there are no Issuer groupson the system to give you an example. 19 Security Price This is theprice of one par of the security. 20 Security Sub- This is a BNYgrouping of the sec types (entity #3). Group 21 Deal Currency This isthe currency of the deal (not of the position). 22 Deal Type This is thetype of the deal. R—Rollover, T—Term, O—Overnight 25 Coupon Rate This isthe coupon rate of a security. 26 Market This is the marketcapitalization expressed in USD Capitalization 36 Dealer Box Thisrepresents the source dealer box of the collateral. 37 Calendar Days Thetime to maturity for a security, expressed in calendar days. Thisprovides a finer- to Maturity grained range than the Months to Maturityentity. 39 Record Date Indicates whether or not the security should beused on the record date of the dividend payment. This will be either 1(Include) or 0 (Exclude). 40 Security Price This is the price of one parof the security expressed in USD. This is in contrast to the in USDSecurity Price entity that expresses the price of one par in the issuingcurrency. 41 Market This is the number of outstanding shares times theSecurity Price in USD. Capitalization 42 GICS Sector The GICS SectorCode for the security. Code 43 GICS Sub- The GICS Sub-Industry Code forthe security. Industry Code

TABLE II CONCENTRATION TYPES TABLE II—CONCENTRATION TYPES Concen-tration Type Description **% The concentration limit is a percentage ofthe portfolio. The concentration limit must be between (but notincluding) 0 and 100. **P The concentration limit is a Par value. *M1The concentration limit is Y times yesterdays traded volume where Y isthe specified concentration limit. *M2 The concentration limit is Ytimes the 2-day average traded volume where Y is the specifiedconcentration limit. *M3 The concentration limit is Y times the 3-dayaverage traded volume where Y is the specified concentration limit. *M4The concentration limit is Y times the 4-day average traded volume whereY is the specified concentration limit. *M5 The concentration limit is Ytimes the 5-day average traded volume where Y is the specifiedconcentration limit. *M3 The concentration limit is Y times the 30-dayaverage traded volume where Y is the specified concentration limit. *M6The concentration limit is Y times the 60-day average traded volumewhere Y is the specified concentration limit. *M9 The concentrationlimit is Y times the 90-day average traded volume where Y is thespecified concentration limit. *MC The concentration limit is Y percentof the Market Cap where Y is the specified concentration limit (a numberbetween 0 and 100). The Rest of the concentration limits representCurrency Concentration Limits for various currencies. The concentrationlimit specified must be in the currency specified and will be themaximum cash value of the position that can be allocated.

Eligibility results are based on data which may be provisional and/orunvalidated. It is recommended that the user performs appropriatevalidation checks prior to executing trades based on these results.Alternately, it is the user/client's responsibility to ensure thatsufficient collateral is held by the custodian/manager of collateralmanagement system 140 to cover any obligations, whether based onfinancial projections or otherwise.

Turning now FIG. 3, a screenshot of an allocation history detail screenis similarly annotated as in FIG. 2. Letter “G” provides a soft buttonto download results (e.g., in CSV format) representing the full set ofdata, or a subset of the data as either Eligible or Ineligible positionsare returned. Letter “H” shows an area on the screen where specificsecurity information may be displayed, such as margin and collateralvalue for one or more securities. Letter “I” indicates an area on thescreen, where, once completed, the reason(s) why a position isineligible is presented to the user if the position is ineligible, or ismissing the necessary data to make a determination. Reference letter “J”in FIG. 3 shows an indication of eligible collateral by use of theeligibility flag (the letter “E”) in the graphical user interface.Alternatively, a security ineligible for use as collateral would have an“I” indication in the column denoted by “J”, with a reason forineligibility provided in the space indicated by the letter “I”. Reasonsfor ineligibility may include the reasons indicated in TABLE III, below.

TABLE III INELIGIBILITY REASONS Reason Text Description Path Number: #If more than one path is being reported on, the path number is printedalong with all failed rules on that path. If there is a problem withsecurity data that is making that position ineligible, the problem onlyneeds to be corrected on one path to make that position eligible. ENTITYOPERATOR VALUE(S); Position Value: For each failed rule being reported,the entity, VALUE(S) operator, and value(s) of that rule is display,along with the supporting data from the security position to show whythe rule failed. As an example: Months to Maturity <= 12; Position Data:15 In this example, the rule specifies that the months to maturity mustbe <= 12, but the security position has a months to maturity of 15making this rule fail. No Broad Type or Sec Subgrp Found for Sec TypeThe security position has a security type not configured on the system.Sec Type SECURITY_TYPE not eligible. The security position has asecurity type not eligible per the specified ruleset. ConcentrationLimit: No # Day Average Traded The # Day Average Traded Volume isrequired to Volume received from our regular vendors calculateeligibility based on a concentration limit, but we do not have this dataavailable to calculate eligibility at this time. # can be one of 1, 2,3, 4, 5, 30, 60 or 90. Concentration Limit: No Market Cap or Shares TheMarket Cap or Shares Outstanding is Outstanding received from ourregular vendors required to calculate a concentration limit, but we donot have this data available to calculate eligibility at this time.Margin Error: Incremental margin changed margin An incremental margin inthe ruleset changed a to haircut. margin to a haircut. This is usuallydue to a ruleset setup problem. Margin Error: Incremental margin changedhaircut An incremental margin in the ruleset changed a to margin.haircut to a margin. This is usually due to a ruleset setup problem.Margin Error: Full margin not found. A margin or haircut cannot be foundin ruleset. Par (#) < Min Par (#) The available par value is smallerthan the minimum required par value. Par (#) < Mult Par (#) Theavailable par value is smaller than the multiple par value required toallocate. No price received from our regular vendors This occurs whenthe market value is zero. This can be caused by a zero value in price,price factor or exchange rate. Security Information Missing. Security isnot known to BNY Mellon at this time.

FIGS. 4A, 4B, and 4C represent a logic flow diagram of a method/processof an embodiment of this disclosure. In FIG. 4A, the process starts atstep S410, and continues to step S415, where various rulesets may beread from database 148. As discussed in more detail in the accompanyingAPPENDIX to this disclosure, rulesets are Boolean expressions that applylogical “AND” and “OR” operators to a set of rules to form a complexexpression, which results in either a “TRUE” (eligible) or “FALSE”(ineligible) response. By way of non-limiting example, a ruleset couldinclude a “broad” type of rule in which a type of security may bespecified, for example by specifying all types of equities (e.g.,stock), or debt (e.g., convertible bonds and/or preferred equities), orcommodities such as foreign currency or precious metals. See Rules 1 and4 in the APPENDIX. As a further rule, the user may further specify thetype of security issuer rating to be considered, e.g., “BB” or “Ba2”, ora security rating, e.g., “A-”, “AA”, “Aa2”, etc. See Rules 2, 3, and 5in the APPENDIX. A listing of entities and concentration limits may befound in TABLES I and II, above.

Using known Boolean algebra manipulation techniques at steps S420, S425,and S430, the resulting logical equations/operations can be iterativelyexpanded into a standard form in which “OR” operators “bubble up” to thetop of the binary decision tree, and from which individual “trees”defining a path are formed at step S435. The definition of a “path” isthat every rule on the path must be eligible in order for a securityposition to be eligible on that path.

At step S440, the collateral eligibility module 142 tracks and recordsvarious attributes, e.g., the number of “PASS” and “FAIL” rules for eachpath. In addition, collateral eligibility module 142 may track whether ageneric position matching the same security type and position currencycould be eligible on that path, or whether a generic position matchingthe same security type could be else go on that path. Step S445 teststhe eligibility of the security position on each path and, if theposition is eligible on every rule in a path at step S450, a “POSITIONELIGIBLE” determination is made at step S455, and the process continuesto interim node “A” at step S460, which continues on FIG. 4B. if thedetermination is made at step S450 that the position is not eligible onevery rule in the path, the process continues to interim node “B” atstep S465, and which continues on FIG. 4C.

If a rule is in the “FAIL” state and mentions a broad type of security,a security subgroup, or a security type entity, the path the rule is onis considered not to accept positions of that security type. Likewise,if a rule in the “FAIL” state mentions the position currency, then thepath the rule is on is considered not to accept positions with the sameposition currency. Such currency positions may not be acceptable due toperceived or actual weakness or risk involved with a currency of aparticular type.

Turning now to FIG. 4B, at step S460, the security position has beenfound to be eligible on every rule in a given path, and the algorithmic“binary tree” processing ends. However, outside of the ruleset, thereare other user-definable reasons why a security position might not beeligible or desirable as collateral for a trade. Exemplary checks beginat step S470 and continue on through step S495.

For example, if the market value of the security position is zero, thissecurity would not be eligible for collateralization, and a zero pricewarning would be reported/output at step S475. As another example, if aminimum number of shares that can be held in a security position (“par”)is less than a minimum par value at step S480, a warning/report isprovided at step S485. If the par value related to the security positionis greater than the minimum par value, but less than a required multiplepar value, at step S490, an evaluation is made, and an appropriatereport/warning is made at step S495.

At step S500, all eligible or reported paths are iteratively checked toconfirm that each path has at least one full margin. A full margin is aprice premium used in connection with various securities havingdifferent liquidities and relative risk. If a full margin is notprovided, a warning is reported at step S510 that no margin has beenfound. Incremental margins may also be used.

At step S515, all eligible or reported paths are iteratively checkedand, if any rule contains a concentration limit, collateral eligibilitymodule 142 will confirm that sufficient data exists at step S525 tocalculate the concentration limit. If the eligible path rules do notcontain a concentration limit, then processing stops at step S520. Ifsufficient data to calculate a concentration limit does not exist, thena missing data report is generated at step S530, and the processing endsat step S520. If sufficient data to calculate a concentration limit isfound at step S525, then a report that market concentration data existsis provided at step S535.

In FIG. 4C, at step S465, the security position has been foundineligible based upon the binary logic tree processing algorithm.However, at step S540, the set of path(s) where a generic positionmatching the security type and position currency is reviewed. Thepath(s) with the highest “PASS/FAIL” ratio is used for reportingpurposes at step S545. All rules in a FAIL state on these paths arereported at step S550 as reasons why the security position is noteligible for collateralization. Processing at step S555 proceeds to stepS460 (letter “A”) in FIG. 4B. If, at step S540 there are no paths wheregeneric position matching of both security type and position currency isfound, then paths with generic position matching of only the securitytype is reviewed at step S560. Again, path(s) with the highest“PASS/FAIL” ratio is used for reporting purposes at step S545, and allrules in a FAIL state on these paths are reported at step S550 asreasons why the security position is not eligible for collateralization.

If steps S540 and S560 do not find any reasons for collateralineligibility, then step S565 assumes that the reason for ineligibilityis that the security type of the security position is not eligible inthe given ruleset. Processing at step S555 proceeds to step S460 (letter“A”) in FIG. 4B.

In addition, the system and method of this disclosure may be utilized ina “pre-deal” scenario, i.e., after agreement between the parties butbefore the deal becomes active. Further, the system and method of thisdisclosure may be utilized in a “post-deal” scenario, i.e., afteragreement between the parties and after the deal becomes active.

The above-discussed embodiments and aspects of this disclosure are notintended to be limiting, but have been shown and described for thepurposes of illustrating the functional and structural principles of theinventive concept, and are intended to encompass various modificationsthat would be within the spirit and scope of the following claims.

Various embodiments may be described herein as including a particularfeature, structure, or characteristic, but every aspect or embodimentmay not necessarily include the particular feature, structure, orcharacteristic. Further, when a particular feature, structure, orcharacteristic is described in connection with an embodiment, it will beunderstood that such feature, structure, or characteristic may beincluded in connection with other embodiments, whether or not explicitlydescribed. Thus, various changes and modifications may be made to thisdisclosure without departing from the scope or spirit of the inventiveconcept described herein. As such, the specification and drawings shouldbe regarded as examples only, and the scope of the inventive concept tobe determined solely by the appended claims.

1. A data processing system for managing collateral risk associated witha trade of a financial instrument, the system comprising: a processor; amemory coupled to the processor and containing a database thereinconfigured to store a ruleset relating to determining eligibility ofcollateral to be considered for a desired trade; a search moduleconfigured to search for accounts that could potentially accept asecurity position therein based upon established search criteria and tostore search results obtained therefrom in said memory, said searchmodule using the search results to identify one or more securitypositions eligible for use as collateral for the trade; and a collateralanalysis module that determines a collateral preference ranking of theone or more security positions eligible for use as collateral for thetrade by at least applying said ruleset via an algorithm executed bysaid processor so as to confirm an eligibility of said one or moresecurity positions eligible for use as collateral for the trade bytesting in accordance with the ruleset, wherein the processor outputs arelative collateral preference indication via a user interface.
 2. Thesystem of claim 1, wherein the user interface is configured to allow auser thereof to selectively run a collateral eligibility check onselected accounts.
 3. The system of claim 2, wherein the collateraleligibility check comprises outputting an indication of missing orincomplete information such that a determination of collateraleligibility is not possible for one or more of the selected accounts. 4.The system of claim 1, wherein the ruleset is configured for aparticular account type.
 5. The system of claim 1, further comprising aplurality of rulesets, each of the plurality of rulesets beingassociated with a particular account.
 6. The system of claim 5, whereinthe collateral analysis module determines a collateral preferenceranking for each of the particular accounts by applying each of saidplurality of rulesets via algorithms executed by said processor so as toprovide a collateral eligibility check for each of said particularaccounts by testing in accordance with an associated ruleset of theplurality of rulesets.
 7. The system of claim 6, wherein the collateraleligibility check for each of said particular accounts is stored in saidmemory as a downloadable spreadsheet.
 8. The system of claim 6, whereinthe collateral eligibility check for each of said particular accounts isstored in said memory and displayed on a display.
 9. The system of claim8, wherein the display at least displays a collateral value and a marginrequirement for each collateral-eligible security.
 10. Acomputer-implemented method for managing collateral risk associated witha trade of a financial instrument, the method comprising: providing adata processing system comprising a memory coupled to a processor andcontaining a database therein configured to at least store one or moreuser-definable rulesets relating to a desired trade; searching foraccounts that could accept potentially eligible security positionstherein based upon user-selectable search criteria and storing searchresults obtained therefrom in said memory and using the search resultsto identify each of the potentially eligible security positions forconsideration as collateral for the trade; and determining aneligibility of the potentially eligible security positions as collateralfor the trade by applying said one or more user-definable rulesets in analgorithm executed by the processor by testing an eligibility of saideach of the potentially eligible security positions as collateral forthe trade, said testing an eligibility comprising testing an eligibilityalong each of a plurality of logical paths defined by the one or moreuser-definable rulesets; and causing the processor to output a relativecollateral preference indication via a user interface.
 11. The method ofclaim 10, further comprising storing the relative collateral preferenceindication in said memory as a downloadable spreadsheet.
 12. The methodof claim 10, further comprising storing the relative collateralpreference indication in said memory and displaying the relativecollateral preference indication on a display.
 13. The method of claim10, further comprising allowing a user to selectively run a collateraleligibility check on selected accounts via the user interface.
 14. Themethod of claim 10, further comprising outputting an indication ofmissing or incomplete information such that a determination ofcollateral eligibility is not possible for one or more user-selectedaccounts.
 15. The method of claim 10, further comprising displaying atleast a collateral value and a margin requirement for eachcollateral-eligible security.
 16. An article of manufacture comprising atangible computer-readable medium that contains computer-executable codethereon which, when executed by a processor, causes the processor tocarry out functions that manage collateral risk associated with a tradeof a financial instrument, wherein the executed code is operable to:store at least one or more user-definable rulesets relating to a desiredtrade in a memory; search for accounts that could accept potentiallyeligible security positions therein based upon user-selectable searchcriteria and store search results obtained therefrom in said memory,said at least one search module using the search results to identifyeach of the potentially eligible security positions for consideration ascollateral for the trade; and determining an eligibility of thepotentially eligible security positions as collateral for the trade byapplying said one or more user-definable rulesets in an algorithmexecuted by the processor by testing an eligibility of said each of thepotentially eligible security positions as collateral for the trade,said testing an eligibility comprising testing an eligibility along eachof a plurality of logical paths defined by the one or moreuser-definable rulesets; and causing the processor to output a relativecollateral preference indication via a user interface.
 17. The articleof manufacture of claim 16, wherein the executed code is furtheroperable to provide a web portal through which the user interfaceaccesses the processor.